What Happens If You Don’t Use a Credit Card?

Not using a credit card, or allowing one to remain dormant, has various financial implications. While credit cards are common for purchases and building credit, some individuals choose to keep them unused. Understanding the effects of this choice on one’s financial standing is important.

Credit Report Implications

Allowing a credit card to remain unused can significantly influence an individual’s credit report and score. Credit utilization, the amount of credit used relative to total available credit, is a primary factor. An open, unused credit card contributes to overall available credit, helping to keep the utilization ratio low, a positive factor in credit scoring. If an unused card is closed, total available credit decreases, which can cause the credit utilization ratio to increase if balances are carried on other cards, potentially lowering the credit score.

The length of credit history is another important element. Keeping an older, unused credit card open can benefit the average age of all credit accounts. Should an older, unused account be closed, it can eventually reduce the average age of the credit history, although closed accounts typically remain on credit reports for up to 10 years. The mix of credit types, including revolving accounts like credit cards and installment loans, is also a scoring factor. Maintaining a diverse credit portfolio, even with an unused credit card, can demonstrate the ability to manage different forms of credit responsibly.

Inactivity and Account Closure

Credit card issuers have policies for inactive accounts. While there is no universal timeframe, an account may be considered dormant and subject to closure if no purchases or transactions occur for a period ranging from a few months to two or three years. Issuers may close accounts due to inactivity because they do not generate revenue from transaction fees or interest on unused credit lines.

Credit card inactivity fees were prohibited by federal regulations in 2010. However, annual fees associated with certain credit cards may still apply even if the card is not actively used. These annual fees can accumulate over time, creating an expense for a card that provides no active benefit. Some cardholders might consider downgrading to a no-annual-fee version of the card or closing the account if the fees outweigh any perceived benefits.

Card issuers are not required to provide advance notice before closing an account due to inactivity, though some may do so as a courtesy. Once an account is closed by the issuer, there is no obligation for them to reinstate it.

Continued Monitoring and Financial Flexibility

Even if a credit card is not actively used, the cardholder retains responsibilities. Regularly monitor statements for unauthorized charges or fraudulent activity. Criminals can exploit dormant accounts, and without diligent oversight, fraudulent transactions may go unnoticed for extended periods.

Not having an active credit card can limit financial flexibility, particularly in unforeseen circumstances. Credit cards can serve as a readily available source of funds for unexpected expenses or emergencies. Without an active credit line, individuals would need to rely on alternative financial resources, such as savings or other forms of loans, to cover immediate costs. This absence of an easily accessible credit safety net requires careful financial planning and robust emergency savings.